The US dollar is too dominant and could be replaced by a global digital alternative, according to the Bank of England Governor, Mark Carney.
Such a move “could dampen the domineering influence of the US dollar on global trade”, Carney said in a speech at a gathering of central bankers in the US. “If the share of trade invoiced in [a digital currency] were to rise, shocks in the US would have less potent spillovers through exchange rates, and trade would become less synchronised across countries”.
“The dollar’s influence on global financial conditions could similarly decline if a financial architecture developed around the new [digital currency] and it displaced the dollar’s dominance in credit markets. By reducing the influence of the US on the global financial cycle, this would help reduce the volatility of capital flows to emerging market economies.”
Digital currencies such as Facebook’s Libra are not in a position to take over from the dollar, but new technologies could allow for a global digital currency to challenge the US currency, he added.
Carney noted that retail transactions are taking place increasingly online rather than on the high street, and through electronic payments over cash.
“The most high-profile of these has been Libra, a new payments infrastructure based on an international stablecoin fully backed by reserve assets in a basket of currencies including the US dollar, the euro and sterling. It could be exchanged between users on messaging platforms and with participating retailers,” he said.
“There are a host of fundamental issues that Libra must address, ranging from privacy to operational resilience. In addition, depending on its design, it could have substantial implications for both monetary and financial stability.”